The Telegraph
Since 1st March, 1999
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Policy nod for FDI hike in private banks soon

New Delhi, Nov. 21: The government today said it will soon issue policy guidelines to allow foreign banks to raise their stake in private banks to 74 per cent.

In February, finance minister Jaswant Singh told Parliament in his budget speech that the government has planned to raise the ceiling from the current 49 per cent.

“The guidelines will be issued within four to six weeks, in which the foreign institutional limit will also be clarified,” said a finance ministry official. Bankers today welcomed the move.

“This is an opportunity. But, I would first like to see the details, given the complexities involved with Indian takeover laws,” said a senior official of a foreign bank.

An increase in the equity, along with a relaxation of voting rights, has long been sought by foreign banks, saying this would help them consolidate their presence.

The finance ministry official said the government expects Parliament to approve the amendments to the Banking Regulation Act, which have already been ratified by the standing committee on finance. These will ensure voting rights proportionate to the stake of foreign players.

He said the finance ministry has sought interim dividends from state-run banks, the actual amount of which would be worked out in consultation with them. “We have written to all state-run banks to pay interim dividends in the third quarter of this fiscal,” he said.

In the last financial year, the state-run banks had paid Rs 800 crore as dividend to the government. “We expect it to be more this financial year in view of the robust performance of the banks,” he added.

“Profits have leapt by nearly 50 per cent and the trend will continue this financial year,” said the official.

Regarding the amendments to the Bank Nationalisation Act to enable dilution of government equity to 33 per cent from the present 51 per cent, the official said, “It is still with the standing committee and it is unlikely that it will be cleared before the winter session of Parliament.”

On the Securitisation Act, the official said the matter was with the Supreme Court and the government hoped that the act was not set aside by the apex court.

The government wants to retain the provisions allowing banks to attach assets of defaulters and sell them to recover the non-performing assets.

The government has included housing finance and cooperative banks under the Securitisation Act. It has also asked the Reserve Bank of India to implement lenders liability code among banks.

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